Medicare Post-Acute Care: Quality Measurement Final Report. A. Post-Acute Care Prospective Payment Systems


In response to the rapidly rising post-acute care expenditures; the Balanced Budget Act (BBA) of 1997 mandated a change from cost-based reimbursement for post-acute care services to prospective payment in all three post-acute settings. The PPSs for each setting differ. It should be noted that, for certain settings, the statute prescribed most of the design of the particular PPS (e.g., the PPS for SNFs), while for other benefits the design of the PPS was subject to considerable administrative discretion (e.g., rehabilitation hospital PPS). The following briefly describes key design elements of recently enacted payment reforms for post-acute care providers.

1. Skilled Nursing Facilities (SNFs)

SNFs are now reimbursed on a per diem basis using case mix groups called Resource Utilization Groups (RUGs). RUGs categories are based on staff time measurement data. Patients are classified into RUGs categories using data from the Minimum Data Set (MDS) collected by facility staff. SNFs are required to complete the MDS on the following days following admission: days 5, 14, 30, and 60. The BBA limited SNF payment rates to amounts paid for these services in 1995, trended forward, and required that SNFs be transitioned to Federal PPS rates over a three-year period. The Balanced Budget Refinement Act (BBRA) of 1999 increased, at least temporarily, SNF PPS payments, effective April 2000, by 20% for 15 RUGs categories to better account for non-therapy ancillary costs for patients in these categories. The BBRA also permitted SNFs to elect to be immediately paid the full Federal PPS rate (rather than being transitioned over three years to the full Federal PPS rate). The Benefits Improvement and Protection Act (BIPA) of 2000 modified the 20% adjustment in response to the concern that some lower cost categories were being overpaid relative to higher cost categories. In addition, BIPA increased the amount of payments for the nursing component of the SNF PPS rates.a

2. Home Health Agencies (HHAs)

The BBA required that HHAs be paid a case mix adjusted prospective payment rate. Payment rates were to be limited to amounts that would have been paid in fiscal year 2000 -- reduced by 15% -- had the PPS not been implemented. The BBRA and BIPA delayed the application of the 15% reduction on HHA payments. At this time, the 15% reduction will not be implemented until 2001.a The HHA PPS was effective for all HHAs October 1, 2000 and pays case mix adjusted rates for each 60-day episode of care. Payment rates are established for each case mix group called Home Health Resource Groups (HHRGs) that were derived from the Outcome and Assessment Information Set (OASIS) assessment instrument completed by provider staff upon admission, every 60 days thereafter, and at discharge.

3. Rehabilitation Hospitals and Units

The BBA and BBRA contained legislation requiring Health Care Financing Administration (HCFA) to implement a PPS for IRFs.a The BBA left the rehabilitation PPS design requirements largely unspecified. However, the BBRA required that a per discharge PPS be established for IRFs based, among other criteria, on factors deemed necessary to improve functional independence measure (FIM) and functional related group methodology (a pre-existing, tested IRF payment methodology). As with the SNF PPS, the BBA required that IRFs transition to the new PPS. However, the BIPA included a provision permitting IRFs to elect to be paid the full PPS rate without such transition. The statute required that the IRF PPS reduce amounts that would have been paid to these providers by 2%. In November 2000, HCFA proposed that IRFs be reimbursed on a per episode basis -- based on case mix groups. The case mix groups were based on patient characteristics collected from the FIMs, a patient assessment instrument voluntarily used by many IRFs. HCFA proposed that patients would be assigned to case mix groups based on patient data derived from a new patient assessment instrument, the MDS for Post-Acute Care (MDS-PAC). The proposed rule would implement the PPS beginning in April 2000. However, HCFA has since announced that implementation will be delayed and a new date has yet to be established. The proposed rule would require IRFs to complete the MDS-PAC on days 4, 11, 30, and 60 after admission; and upon discharge. HCFA is in the process of reviewing comments received on the proposed payment and assessment systems.